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Fed Tapering Remains Up in the Air

New data is shedding some light on the U.S. economy – and it’s not a pretty picture. Jobs data shows that the U.S. added just 169,000 jobs last month, and as recent data has revealed, many fewer jobs were added in June and July than originally estimated. Worse yet is that the biggest jobs gains came in lower quality jobs, such as retail and food service, that pay low wages.

While the unemployment rate fell to 7.3%, it was mostly because people have stopped looking for jobs. In fact, the labor participation rate dropped to its lowest level in 35 years.

Cary Leahey, the chief economist at Decision Economics, said,  “That is the reason the Fed is doing what they’re doing in the belief that the longer you remain unemployed, the harder it is to get back into the market. You don’t even enter the labor force. I don’t see that changing any time soon.”

The recent jobs data will be the last report before the Fed meets to decide whether to begin tapering its massive bond purchasing program. Since the economic data was neither particularly strong or weak, it makes Ben Bernanke’s job that much tougher. He is due to decide whether to begin tapering this month. On Wall Street, opinions were greatly divided.

Bianco Research president Jim Bianco says the weak report will prompt the Fed to hold off for now.

“I don’t think there’s anything that would prompt the Fed to start tapering. The numbers came in a little weaker than expected. The revisions to June, July were a bit of a disappointment as well. Yes, the unemployment rate dropped, but that was from the fall in the participation rate. So this shouldn’t really get the Fed to move at this point.”

However, not everyone agrees, saying that since the economy is still creating jobs there is room for mild tapering of bond purchases.